You Need to Include These in Your Financial Plan
Many financial plans ignore these — don’t make that mistake.
All financial plans include the traditional “Big 4” -
- Saving
- Emergency fund
- Debt reduction and
- Investing
I have already discussed those elements of a solid financial plan here.
Unfortunately, there are 2 aspects of a financial plan that are often ignored. These are important to the plan’s success, so ignoring them can bring the plan undone.
Don’t let this happen to you.
To be fair, the connection between these and financial matters is not immediately obvious. Not obvious, that is until someone points them out and gives them the attention they deserve.
I am that someone, and the purpose of this article is to explain the connection, so your financial plan can be more comprehensive.
I assume you have a documented financial plan covering the 4 elements above. You do have a financial plan, don’t you?
Ok, let’s expand it. The first one is somewhat obscure. It’s . . .
Look after yourself
As I warned you, the connection is obscure so let me explain.
If you don’t look after yourself (& your family), there is a considerable risk that life will become more complicated and not what you had planned.
So, what does looking after yourself involve?
Medical
Make sure you have the recommended routine medical tests, including dental regularly. Early detection of medical problems helps to reduce the severity of any condition and usually reduces recovery time.
Delayed treatment will often be more expensive and more disruptive to your life, making your financial goals harder to achieve.
And, keep your vaccinations up to date (yes, I’m game to go there!). For the vast majority of the population, vaccinations positively benefit our health. Naturally, get qualified medical advice before taking this step and remember that prevention will help your financial future.
Diet and exercise
Research over many years has established the importance of diet and exercise in the prevention or severity of a wide range of diseases.¹
Therefore, logic dictates that a healthy diet and an appropriate exercise program will assist with the maintenance of good health for many years into the future. And the good news is that it’s never too late to start.
Regular medical tests will identify problems, but diet and exercise will help avoid the issues even occurring.
Again, the benefits for your financial position will be significant.
Stress/mental health
It is increasingly evident that stress and poor mental health have a damaging effect on our lives in general. And that includes our financial lives.
Feelings of hopelessness and despair are challenging to overcome without help and can lead to a loss of jobs, businesses, family and other relationships. Financial well-being is not a priority in these circumstances and can quickly lead to financial ruin.
As with your physical health, appropriately qualified advice is needed to remedy your situation. Don’t try to tough it out — the results will be sub-par and temporary.
Fortunately, the same diet² and exercise³ discussed above have been shown to help improve stress levels and mental health. It won’t be a complete remedy, but it will help.
As an aside: Can you tell I am a fan of a healthy diet and sensible exercise?
Ok, so now we have you sorted, what’s next?
Attend to the legal basics
Yes, you do need to face your mortality!
Last Will and Testament
A recent survey⁴ reported that 68% of Americans do not have a Will.
The common misconception is that Wills are for old people, which can have tragic consequences for the families left to sort out the financial affairs of a family member who “died too young”. How many times do we hear that?
Financial planners often encounter resistance from clients when they recommend establishing (or even updating) a Will. Some clients see it as a contract with death rather than an act of kindness to the remaining family members.
A Will is a legal basic for everyone, and make sure it conforms to the stringent legal requirements for a Will in your state.
Usually, if you die intestate (without a Will), your assets will be transferred to your spouse and dependents. This may be your intention; in which case, no harm is done except that -
- There will be delays while the courts appoint an administrator and
- There is the possibility of family disputes.
Of course, family disputes can occur when there is a Will, so (again), you need to make sure it conforms to the stringent legal requirements for a Will in your state.
Powers of Attorney
It is confronting to contemplate that we may not be capable of making our own decisions while we are still alive. I am sure you are aware of situations where that is (or was) the case.
Powers of Attorney are the solutions for these situations.
It is possible to appoint an attorney to cover all decisions, or, if you prefer, you can appoint an attorney to deal with financial decisions only. Similarly, you could appoint an attorney to make medical decisions only.
Where you limit Powers of Attorney, it is advisable to appoint someone to make the “other” decisions.
Warning: splitting powers can get messy, so legal advice on setting these up is advisable.
Trusting the appointee is critical in these situations as the possibility of fraudulent activity is high. We have all witnessed or heard of cases where the attorney allegedly or actually abuses the power granted (Shout out to Britney here).
Estate Plan
To bring these elements together, an estate plan will combine your Will, Power(s) of Attorney and other elements of your estate such as your 401(k)plan and your IRA as well as any insurances you have in place.
The aim of effective estate planning is to ensure your assets are distributed as efficiently as possible avoiding any taxes or other charges which may otherwise be payable.
Taking action while you are still alive can save you and/or your estate from avoidable losses.
Of course, for some, there are insufficient assets to justify careful estate planning which is a decision you need to make. I’d suggest you have a general discussion with an expert to assess your potential liability and decide whether a formal plan is needed.
Review at least every 5 years.
None of these arrangements is set in stone. You could experience a relationship breakdown or other changed circumstances which may cause you to change your view of who should benefit from your estate.
Also, nominated attorneys, beneficiaries and executors of your Will may die or lose mental capacity so you will need to revise these documents.
Not doing so may undo all the preparation you have in place and leave your family (or yourself) in an unclear situation.
Time for action
So there you have it.
Look after yourself to avoid (as much as possible), serious illness and look after the legal basics to soften the blow of your passing.
Although neither of these is a direct part of your financial plan, they can have a significant impact on whether your plan works as planned or is derailed leaving you struggling to cope.
Do not be afraid to seek professional help with these important parts of your planning.
References
- Andy Mann et. al. September 2020. Impact of Lifestyles (Diet and Exercise) on Vascular Health: Oxidative Stress and Endothelial Function Published in Dimensions.
- J. Douglas Bremner et.al. August 2020. Diet, Stress and Mental Health Published in MDPI
- Kathleen Mikklesen et.al. December 2017. Exercise and mental health Published in Science Direct
- Reid Kress Weisland and David Horton May 2020. 68% of Americans do not have a will Published in The Conversation